SAP Announces Preliminary 2007 Second Quarter and Six Months Results

WALLDORF, Germany, July 19 /PRNewswire-FirstCall/ -- SAP AG (NYSE: SAP) today announced its preliminary financial results for the second quarter and six months ended June 30, 2007.

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Thursday, July 19th, 2007

WALLDORF, Germany, July 19 /PRNewswire-FirstCall/ — SAP AG (NYSE: SAP) today announced its preliminary financial results for the second quarter and six months ended June 30, 2007.

HIGHLIGHTS – Second Quarter 2007 Revenues — Software and software related service revenues for the second quarter of 2007 were euro 1.71 billion (2006: euro 1.48 billion), which is an increase of 16% (19% at constant currencies(1)) compared to the second quarter of 2006. — Software revenues for the second quarter of 2007 were euro 715 million (2006: euro 604 million), representing an increase of 18% (21% at constant currencies(1)) compared to the second quarter of 2006. — Total revenues were euro 2.42 billion for the 2007 second quarter (2006: euro 2.20 billion), which represented an increase of 10% (14% at constant currencies(1)) compared to the same period of 2006. Income — Operating income for the second quarter of 2007 was euro 577 million (2006: euro 524 million), which was an increase of 10% compared to the second quarter of 2006. — The operating margin for the 2007 second quarter was 23.8%, which was down slightly from the 23.9% operating margin reported for the second quarter of 2006 due to investments of approximately euro 30 million to address new untapped segments in the midmarket. — Net income for the 2007 second quarter was euro 449 million (2006: euro 415 million), or euro 0.37 per share (2006: euro 0.34 per share), representing an increase of 8% compared to the second quarter of 2006. Second quarter 2007 net income and earnings per share were positively impacted by an effective tax rate of 25.8%. As in the second quarter of 2006, the effective tax rate was partly influenced by non-recurring tax effects.

Core Enterprise Applications Vendor Share(2)

SAP continued to gain share in the second quarter of 2007, marking the sixth consecutive quarter of share gains. Based on software and software related service revenues on a rolling four quarter basis, SAP's worldwide share of Core Enterprise Applications vendors(2), which account for approximately $35.3 billion in software and software related service revenues as defined by the Company based on industry analyst research, increased to 26.0% for the four quarter period ended June 30, 2007 compared to 25.1% for the four quarter period ended March 31, 2007 and 23.0% for the four quarter period ended June 30, 2006, representing a the year-over-year share gain of 3 percentage points.

Also, the Company reported that its midmarket business increased to 32% of order entry for the rolling four quarter period ended June 30, 2007.(3)

"The second quarter was an excellent quarter for SAP with double digit growth in all regions, and we continued to gain share against core enterprise application vendors," said Henning Kagermann, CEO of SAP AG. "Our performance demonstrates our global strength. For the remainder of the year we plan to build upon our first half success by further expanding the adoption of our Enterprise Services Oriented Architecture (ESOA) and growing our already leading presence in the midmarket."

HIGHLIGHTS – Six Months 2007 Revenues — Software and software related service revenues for the first six months of 2007 were euro 3.23 billion(4) (2006: euro 2.87 billion), which is an increase of 13% (17% at constant currencies(1)) compared to the first six months of 2006. — Software revenues for the 2007 first half were euro 1.28 billion(4) (2006: euro 1.12 billion), representing an increase of 14% (19% at constant currencies(1)) compared to the 2006 first half. — Total revenues were euro 4.59 billion for the first half of 2007 (2006: euro 4.24 billion), which represented an increase of 8% (12% at constant currencies(1)) compared to the same period of 2006. Income — Operating income for the 2007 first half was euro 1.01 billion (2006: euro 933 million), which was an increase of 8% compared to the 2006 first half. — The operating margin for the 2007 six month period was 22.0%, which was flat compared to the same period last year due to investments of approximately euro 50 million to address new untapped segments in the midmarket. — Net income for the 2007 first half was euro 759 million (2006: euro 697 million), or euro 0.63 per share (2006: euro 0.57 per share), representing an increase of 9% compared to the same period of 2006. First half 2007 net income and earnings per share were positively impacted by a second quarter effective tax rate of 25.8%. As in the second quarter of 2006, the effective tax rate was partly influenced by non-recurring tax effects.

Cash Flow

Operating cash flow for the first six months of 2007 was euro 1.02 billion (2006: euro 977 million). Free cash flow(1) for the 2007 six month period was euro 822 million (2006: euro 846 million), which was 18% of total revenues (2006: 20%). At June 30, 2007, the Company had euro 2.8 billion in cash and cash equivalents and short term investments (December 31, 2006: Â€3.3 billion).

Share Buy-Back

In the second quarter of 2007, the Company bought back 4.6 million shares at an average price of euro 36.62 (total amount: euro 167 million). This compares to 12.5 million shares (total amount: euro 515 million) bought back in the second quarter of 2006. Of the total shares purchased in the first quarter of 2007, approximately 0.8 million shares were used to serve exercises under SAP's share based compensation programs. The number of shares bought back in the second quarter of 2007 represented 0.36% of the total shares outstanding. As of June 30, 2007, the Company held Treasury stock in the amount of 62.0 million shares (approximately 4.9% of total shares outstanding) at an average price of euro 35.43. In the first half of 2007 the company invested euro 505 million buying back approximately 14.2 million shares at an average price of euro 35.63. Given the Company's strong free cash flow generation, SAP plans to spend a similar amount for share buy-backs in 2007 as it did in 2006 under its current share buy-back authorization. All prior year share related numbers above have been adjusted to account for the capital share increase that took effect in December 2006 that effectively increased the number of shares outstanding four-fold.

BUSINESS OUTLOOK

The Company continues to provide the following outlook for the full-year 2007 as described in its January 24th, 2007 fourth quarter results press release.

— The Company expects full-year 2007 software and software related service revenues to increase in a range of 12% – 14% at constant currencies(1) compared to 2006 growth of 12% at constant currencies(1). — In order to address additional growth opportunities in new, untapped segments in the midmarket, the Company will invest an additional euro 300 million – euro 400 million over eight quarters to build up a new business, of which approximately euro 50 million was already invested over the first two quarters of 2007. Depending on the exact timing of these accelerated investments, this is equivalent to the Company reinvesting approximately one to two percentage points of margin in 2007 into additional future growth opportunities. Therefore, the Company expects the full-year 2007 operating margin to be in the range of 26.0% to 27.0% compared to the 2006 operating margin of 27.3%. — The Company is projecting an effective tax rate of 32.5% – 33.0% for 2007. Regional Performance – Second Quarter 2007

Second Quarter 2007 Software and Software Related Service Revenues by Region

(in euro millions, unaudited) SAP Group Software Software & SW & SW Related Related Service Service Constant Revenues Revenues Currency Q2 2007 Q2 2006 Change % Change %Change Total 1,707 1,477 +230 +16% +19% EMEA 916 789 +127 +16% +17% Asia Pacific Japan 222 179 +43 +24% +29% Americas 569 509 +60 +12% +18% Second Quarter 2007 Software Revenues by Region (in euro millions, unaudited) SAP Group Software Software Constant Revenues Revenues Currency Q2 2007 Q2 2006 Change % Change %Change Total 715 604 +111 +18% +21% EMEA 350 286 +64 +22% +23% Asia Pacific Japan 107 84 +23 +27% +31% Americas 258 234 +24 +10% +15% Second Quarter 2007 Total Revenues by Region (in euro millions, unaudited) SAP Group Constant Revenues Revenues Currency Q2 2007 Q2 2006 Change % Change %Change Total 2,424 2,195 +229 +10% +14% EMEA 1,267 1,136 +131 +12% +12% Asia Pacific Japan 304 254 +50 +20% +25% Americas 853 805 +48 +6% +12% Regional Performance – Six Months 2007 Six Months 2007 Software and Software Related Service Revenues by Region (in euro millions, unaudited) SAP Group Software Software & SW & SW Related Related Service Service Revenues Revenues Constant Six Mos Six Mos Currency 2007 2006 Change % Change %Change Total 3,226 2,865 +361 +13% +17% EMEA 1,668 1,477 +191 +13% +14% Asia Pacific Japan 419 369 +50 +14% +19% Americas 1,139 1,019 +120 +12% +20% Six Months 2007 Software Revenues by Region (in euro millions, unaudited) SAP Group Software Software Revenues Revenues Constant Six Mos Six Mos Currency 2007 2006 Change % Change %Change Total 1,278 1,118 +160 +14% +19% EMEA 587 506 +81 +16% +17% Asia Pacific Japan 184 154 +30 +19% +25% Americas 507 458 +49 +11% +18% Six Months 2007 Total Revenues by Region (in euro millions, unaudited) SAP Group Revenues Revenues Constant Six Mos Six Mos Currency 2007 2006 Change % Change %Change Total 4,590 4,236 +354 +8% +12% EMEA 2,348 2,142 +206 +10% +10% Asia Pacific Japan 571 510 +61 +12% +18% Americas 1,671 1,584 +87 +5% +13% KEY EVENTS – Second Quarter 2007 — In the second quarter of 2007, SAP announced major contracts in all key regions: Banco Columbia, City of San Diego, Colgate-Palmolive, Enbridge, Gerdau Acos Longos, Maxim Integrated Products, Mexichem, Sandisk in the Americas; DSG international, Edeka, Federalnaya, Gas Natural Informatica, HSH Nordbank, QinetiQ, Surgutneftegaz in EMEA; Australian Post, China Petroleum & Chemical, Konica Minolta, Kracie, Tokuyama, Tokyo Electron in Asia Pacific Japan. — A major milestone in the second quarter was the signature of a Global Enterprise Agreement with Colgate-Palmolive, a leading global consumer products company. SAP has been Colgate's trusted advisor and strategic software partner since 1994. Colgate has deployed almost the entire SAP suite so that at present the vast majority of Colgate's business is being supported by SAP software. With this agreement SAP and Colgate document their mutual interest to continue their highly successful journey to an enterprise service enabled destination architecture at Colgate. — On June 20, SAP and IDS Scheer announced the expansion of their global reseller agreement for IDS Scheer's ARIS Platform. In response to growing customer demand, SAP will now globally resell additional IDS Scheer ARIS software packets for managing business processes that are marketed under the name "SAP Enterprise Modeling Applications by IDS Scheer". — On June 13, SAP and Visiprise announced a joint worldwide offering to help discrete manufacturers manage the complex manufacturing processes that define their business. Available today, SAP will resell and market the Visiprise Manufacturing product under the name "SAP(R) Manufacturing Execution by Visiprise." — Building upon the success of its North American partnership, SAP announced on June 11 a worldwide expansion of its current reseller agreement with Vistex Inc., a leading provider of embedded solutions that extend the core value of SAP application functionality. In response to increasing global market demand, SAP has agreed to resell Vistex solutions worldwide, marketed under the names "SAP(R) Paybacks and Chargebacks by Vistex" and "SAP(R) Incentive Administration by Vistex". — On June 8, SAP announced the opening of the "SAP Co-Innovation Lab" at SAP Labs U.S. in Palo Alto, California. The SAP Co-Innovation Lab will offer a hands-on environment for SAP, independent software vendors (ISVs), system integrators (SIs) and technology partners to work together with customers around current and future technologies. Founding sponsors of the SAP Co-Innovation Lab include Cisco, HP, Intel and NetApp. — On June 4, SAP announced it had joined "3C – Combat Climate Change," a business leaders' initiative seeking to deeply ingrain climate issues vinto the world of markets and trade. SAP is the first enterprise software company to join the roster of more than 40 signatory companies from 11 of the G8 +5 countries. — Continuing to deliver on its commitment to fuel innovation in the utilities industry, SAP announced on May 21 the formation of the industry value network (IVN) for utilities. The network will bring together customers and partners – including leading utilities companies, independent software vendors (ISVs), systems integrators (SIs) and technology vendors – with SAP to address key business challenges and solutions for the utilities industry. — At SAPPHIRE '07 in Vienna in May, SAP announced the acquisition of Wicom Communications and MaxWare. — At SAPPHIRE '07 in Vienna, SAP additionally announced strategic partnerships with Sungard for Enterprise SOA, with Novell for Linux support and with Microsoft for MS SQL Server. Furthermore, SAP introduced SAP(R) GRC Risk Management, a market-leading portfolio of solutions for governance, risk and compliance. More than 8,000 partners and customers attended SAPPHIRE '07 Vienna. — At SAP AG's annual general meeting of shareholders, held in Mannheim on May 10, 2007, shareholders approved a dividend for 2006 of euro 0.46 per ordinary share. This is a 27% increase over the previous year's dividend. SAP paid out a total of about euro 556 million (previous year: euro 447 million), which equates to a dividend payout ratio of approximately 30% of SAP's net income. — On May 8, SAP announced the acquisition of OutlookSoft Corporation. With the strategic acquisition, SAP extends its leadership in delivering comprehensive solutions to CFOs spanning Enterprise Resource Planning (ERP), Governance, Risk and Compliance (GRC) and Corporate Performance Management (CPM). — At SAPPHIRE '07 in Atlanta in April, the Company's executives detailed new tools and strategies such as a road map for a next wave of SAP NetWeaver innovations, a new on-demand application for electronic billing, a new appliance for Duet software together with its partners HP and Microsoft as well as an extended road map for Duet. Approximately, 15,000 customers and partners participated in SAPPHIRE '07 Atlanta. — At SAPPHIRE '07 in Atlanta, SAP also announced its collaboration on a new enterprise learning product with partner Adobe. SAP Enterprise Learning creates a unique learning environment through the combination of SAP Learning Solution with "Adobe Acrobat Connect Professional". — On April 18, SAP announced that members of the industry value network (IVN) for banks – which brings together SAP, banks and non-banks to collaboratively develop solutions for the banking industry – have formed an expanded definition group to co-innovate and create global standards for enterprise service-oriented architecture (enterprise SOA). — On April 18, SAP announced that it would further extend its unparalleled expertise and market leadership in industry solutions, with 11 new industry forums being added to the rapidly growing Business Process Expert Community. In addition to the existing consumer products industry forum, SAP has added forums for the public sector, chemicals, higher education and research, defense, healthcare, life sciences, oil and gas, mining and metal, industrial machinery and components, utilities, and retail industries. — On April 10, SAP announced further measures in the merger of its European field operations into a single region for Europe, the Middle East and Africa (EMEA), addressing the increasingly transnational nature of business processes among its large-enterprise and midmarket customers in Europe. Erwin Gunst, Corporate Officer and member of SAP's Executive Council, now leads the entire EMEA region.

Webcast/Supplementary Financial Information

SAP senior management will host a financial analyst and investor presentation in London today at 1:00 PM (CET) / 12:00 PM (GMT) / 7:00 AM (Eastern) / 4:00 AM (Pacific). The conference will be web cast live on the Company's website at http://www.sap.com/investor and will be available for replay purposes as well. Supplementary financial information pertaining to the quarterly results can be found at http://www.sap.com/investor.

About SAP

SAP is the world's leading provider of business software*. More than 41,200 customers in more than 120 countries run SAP(R) applications-from distinct solutions addressing the needs of small and midsize enterprises to suite offerings for global organizations. Powered by the SAP NetWeaver(R) platform to drive innovation and enable business change, SAP software helps enterprises of all sizes around the world improve customer relationships, enhance partner collaboration and create efficiencies across their supply chains and business operations. SAP solution portfolios support the unique business processes of more than 25 industries, including high tech, retail, financial services, healthcare and the public sector. With subsidiaries in more than 50 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE under the symbol "SAP." (Additional information at < http://www.sap.com >)

Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "predict," "should" and "will" and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations The factors that could affect SAP's future financial results are discussed more fully in SAP's filings with the U.S. Securities and Exchange Commission ("SEC"), including SAP's most recent Annual Report on Form 20-F filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serve informational purposes only. National product specifications may vary.

This press release discloses certain financial measures, such as free cash flow, and constant currency period-over-period changes in revenue and operating income, that are not prepared in accordance with U.S. GAAP and are therefore considered non-GAAP measures. Our non-GAAP measures may not correspond to non-GAAP measures that other companies report. The non-GAAP measures that we report should be considered as additional to, and not as substitutes for or superior to, revenue, operating income, cash flows, or other measures of financial performance prepared in accordance with U.S. GAAP. Our non-GAAP measures are reconciled to the nearest U.S. GAAP measure in this report.

(1) Non-GAAP Measures

This press release discloses certain financial measures, such as free cash flow, and constant currency period-over-period changes in revenue and operating income, that are not prepared in accordance with U.S. GAAP and are therefore considered non-GAAP measures. Our non-GAAP measures may not correspond to non-GAAP measures that other companies report. The non-GAAP measures that we report should be considered as additional to, and not as substitutes for or superior to, revenue, operating income, cash flows, or other measures of financial performance prepared in accordance with U.S. GAAP. Our non-GAAP measures are reconciled to the nearest U.S. GAAP measure in this press release.

FREE CASH FLOW

We believe that free cash flow is a widely accepted supplemental measure of liquidity. Free cash flow measures a company's cash flow remaining after all expenditures required to maintain or expand the business have been paid off. We calculate free cash flow as operating cash flow minus additions to long-lived assets excluding additions from acquisitions. Free cash flow should be considered in addition to, and not as a substitute for or superior to, cash flow or other measures of liquidity and financial performance prepared in accordance with U.S. GAAP.

We believe it is important for investors to have information that provides insight into our sales growth. Revenue measures determined under U.S. GAAP provide information that is useful in this regard. However, both growth in sales volume and currency effects impact period-over-period changes in sales revenue. We do not sell standardized units of products and services, so we cannot provide relevant information on sales volume growth by providing data on the growth in product and service units sold. To provide additional information that may be useful to investors in breaking down and evaluating sales volume growth, we present information about our revenue growth and various values and components relating to operating income that are adjusted for foreign currency effects. We calculate constant currency year-over-year changes in revenue and operating income by translating foreign currencies using the average exchange rates from the previous (comparator) year instead of the report year.

Constant currency period-over-period changes should be considered in addition to, and not as a substitute for or superior to, changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP.

We believe that data on constant currency period-over-period changes have limitations, particularly as the currency effects that are eliminated constitute a significant element of our revenues and expenses and may severely impact our performance. We therefore limit our use of constant currency period-over-period changes to the analysis of changes in volume as one element of the full change in a financial measure. We do not evaluate our growth and performance without considering both constant currency period-over-period changes on the one hand and changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP on the other. We caution the readers of this press release to follow a similar approach by considering data on constant currency period-over-period changes only in addition to, and not as a substitute for or superior to, changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP.

Constant currency year-over-year changes in revenue and operating income reconcile to the respective unadjusted year-over-year changes as follows:

Beginning in the first quarter of 2007, the Company began using software and software related service revenues for defining Core Enterprise Application Vendor Share because the Company believes that this is the most important indicator for vendor share oriented analysis with the realignment of its income statement structure. Prior to the first quarter of 2007, the Company had been using software revenues for defining Core Enterprise Application Vendor Share.

The Company provides share data based on the vendors of Core Enterprise Applications solutions, which account for approximately $35.3 billion in software and software related service revenues as defined by the Company based on industry analyst research. For 2007, industry analysts project approximately 7% year-on-year growth for core Enterprise Applications vendors. For its quarterly share calculation, SAP assumes that this approximate 7% growth will not be linear throughout the year. Instead, quarterly adjustments are made based on the financial performance of a sub set (approximately 25) of Core Enterprise Application vendors.

(3) The Company defines the midmarket as consisting of companies with either less than 2,500 employees, or less than US$1 billion in revenues.

(4) As stated in its January 24, 2007 press release, the Company disclosed that it accommodated a US customer with a modification of contracts signed between SAP and this customer prior to 2006 (1997 – 2005). This accommodation entered into by the end of September, 2006 resulted in a reduction of license revenues by euro 31 million for the third quarter of 2006, but it did not impact the value of licenses sold in the US in 2006. In January, the Company stated that it expected to reinstate a portion of the euro 31 million of software revenue with this US customer in the first quarter of 2007. In the first quarter of 2007, the Company reinstated in software revenue euro 19 million of the euro 31 million reduction from the third quarter of 2006. The Company does not expect to recover any further software revenue amounts.